Given the horrendous disappointment that Facebook's (FB) IPO has become, with shares down 25% from its offering price, lawsuits flying around like snowflakes, and a general air of queasiness surrounding the entire social media/e-commerce industry, it is perhaps no surprise that Connecticut-based travel site Kayak.com has delayed its IPO indefinitely.
And yet, some market watchers say, while troublesome now, the liquidity, attention and rush of relative analysis that Facebook and its peers are being subjected to, will ultimately be positive. Add in the fact that this previously hot space didn't even exist a year ago, and the riches-to-rags story takes on epic proportions.
"One of the things that FB has done to the broader social media space is that it obviously has come to market with a significant premium and valuation relative to the rest of the market," says Bruno Del Ama, CEO of Global X Funds, which created the Social Media ETF (SOCL). "So it begs the question, is Facebook overvalued or are the other companies undervalued?"
While he says everyone acknowledges a company with 900-million users deserves to be valued at some sort premium, ''the extent of that premium" is likely to remain the source of great debate for months - if not years - to come, while the company establishes a track-record of growth and restores its battered credibility.
From his purview, the best social media plays right now are overseas in stocks like China's SINA Corp. (SINA), Renren (RENN), and Tencent (TCTZF), and even Russia's (Mail.RU). For the record, Facebook is currently the third largest holding in the Social Media ETF at about 7.7% of assets, behind LinkedIn (LNKD) and Tencent.
Domestically, Del Ama points to the LinkedIn vs. Facebook debate. He says that even though both companies are profitable and growing rapidly, some people argue that LinkedIn "has a better business model" because of it's a higher price-point with regards to the type of revenue and advertising its business and job-seeking network attracts.
Generally, he prefers companies that ''have a moat" or operate a network that is hard to replicate. In the case of Groupon (GRPN), he says the business model is more open to attack.
Clearly, Facebook's early missteps underscore how much the company and its managers have to learn, and Del Ama says it is important that investors not lose sight of the fact that social media investing is still in the ''very early stages'' and that you need to be careful.
That also holds true for the companies themselves, as seen in Kayak's delay to go public. And hopefully the still-private Twitter is taking notes and planning a strategy when it goes public, something Del Ama predicts isn't going to happen anytime soon now, as they "wait out the volatility and bad press" from the sidelines.
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